I love your outside entertaining area. It does need a color that would complement but give the area a focal point. I like the darker red,orange colors you may find in natural. You could dress up the table with accessories and place cushions in a complimentary color on the benches. Colored potting containers would also bring it all together. I like the uplighting here in the photo you could place along the back fence to add drama. Your area reminds me of Modern mediterranean landscaping.

At this age you should just ask for favorite colors, and then you pick the complimentary covers. Real privacy demand won't happen until about 11 - 13, so right now just concentrate on making it beautiful. If it is pretty and functional, they will love it! Buy furniture pairs so when you do split them up they each have basics. Advice about dividing the room generally is good, but you don't want big sister declaring any territory! There is a crown detail you can do over a bed that includes curtains down on either side - can provide privacy when you sit up in your own bed - consider this as they get a little older and won't pull it down while hijinxing. If it is beautiful and the textiles are in a color they love (or two colors that work together, like pink and lavender on a spring green or taupe wall &/or turquoise and spring green on a buttercream yellow wall ) - then they will see that they can also be different people who are harmonious together. At 7, she is old enough to pick a great color, but don't ask the 5 year old - her taste is changing daily - just surprise her with something all her own that works with sister's pick. I like the look when people select soft goods that match except for color and find one great print accent pillow that ties colors together for both beds. Stay with neutrals on furniture - you can paint out different stuff so it is tied together with pale gray paint. Think mostly about function - Add shelves and cubbies that hold baskets for stuff - stuff changes but they always have it. If you have room, give them each a desk as they approach 5th grade.

I would love the rocking chair too, but way too expensive for me, unfortunately!! Yellow could be good... hmmm, will have a look, thanks

I would go with a gold or yellow ... of course I happen to love teal/ turquoise and gold/ yellow together. Something in variations on the photos below... maybe some pink accents if you have a girl or lime green or blue accents if you have a boy.